OZY.com: How China plans to go global

Feb. 20, 2014
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Baidu's Hesong Tang discusses China and the Internet. / Hesong Tang

by Sanjena Sathian, OZY.com

by Sanjena Sathian, OZY.com

If anyone knows why China seems to be on the verge of eating America's lunch, Hesong Tang does.

Born into a family of bamboo cutters in rural Xiang Yang, China, Hesong Tang had never taken a shower or used a toilet before he was accepted into Tsinghua University, considered the Chinese MIT. And while that must have been a lot for a freshman-year roommate to deal with, Tang, who now oversees all corporate development at Baidu, China's version of Google, says "everything" has changed in China in the last two decades.

You probably haven't heard his name before. But this is the guy who controls the purse strings of China's largest Internet company. So it's best to listen up when one of the key minds running this $59 billion-valued company tells OZY six key takeaways about China, the Internet and the global economy.

1. Going global, fearlessly

OZY: How are Chinese companies like Baidu going to win the wider global race against companies like Google? There are plenty of odds against it.

HESONG TANG: China's Internet companies are more and more aggressively going global. Baidu has a presence in more than 10 countries outside of China: Thailand, Malaysia, Vietnam, Tokyo, Egypt, Brazil, Japan â?¦ and we have a few other countries. Now companies like Tencent have local offices here. They are making acquisitions in the U.S. and promoting their user base in the U.S.

Another company is called UCWeb, a mobile browser company. The company has about 30 percent of market share in India and is operating in more than 10 countries with significant market share - in each case, more than 10 percent.

OZY: Here's one quick hit - what do Chinese companies do better than American companies? You know both worlds, having worked at Microsoft in a heavily expat market.

HT: Decision-making in many American companies is very slow. When I joined Baidu [from Microsoft], I found our decision-making very quick. One example [was] when Baidu acquired 91 Wireless - an Android application store - at $1.9 billion, which was the biggest-ever Internet acquisition in China. That was my deal. I was the person in charge of driving the whole thing. From the day of negotiating acquisition to signing the term sheet, it took between â?¦ eight and 10 days. That's unbelievable for a deal at $1.9 billion. When I was at Microsoft, I saw that for every deal, it took several months to make a decision. It's impossible to work like that. And that's why I think in China, many U.S. Internet companies have not done very well.

OZY: What else?

HT: Perfectionism.

In China, even in a big company like Baidu, on our campus - even at 8:00, 9:00 at night - the meeting rooms are overbooked. In China, there's a cultural thing - about perfectionism and entrepreneurship. And that's the key thing for the Internet business: Work fast.

OZY: And hard.

3. Censorship: Kinda good for business

OZY: Elephant in the room. The word censorship is (metaphorically) flashing in big red lights above this whole conversation. Sorry for mixing metaphors. But let's focus on that question. What do the rules about Internet in China mean for your business?

HT: There is less competition from multinational companies. Facebook cannot be in China. Google is struggling in China, and so a low-cost search engine company like Baidu and others get a better chance.

But [meanwhile] there are other major factors stirring business opportunity outside of these things. Entrepreneurs - and I'm not an entrepreneur, I'm a corporate executive - but entrepreneurs are doing things that are incrementally good for the market. On the other hand, U.S. Internet companies â?¦ are pretty much a failure in the Chinese market. Google doesn't do well. Yahoo is not doing well. EBay is not doing well. MSN used to be great, but it's shrinking its market share.

4. Deregulation ahead

OZY: What don't we know about the state of the Chinese economy right now - and how will it affect innovation?

HT: The new Chinese government supports reform and deregulation. China used to be a centralized economy like the Soviet Union, but that was 30 years ago. Since then, it has become a market economy. Today, it's still a partial market economy - partial, because there are a lot of regulations over here.

But the government is very determined - and the whole society is determined - to get deregulated, to drive a more market-oriented economy. Which is very good.

5. Business models > tech innovation?

OZY: If China really does beat out the U.S. tech market, how would it happen?

HT: The U.S. is taking the lead in terms of innovation and technology advancement - a big lead. But China's innovation is in business models, thinking about how to get users.

Take WeChat - it's like WhatsApp in China. But as a feature, WeChat is much better, much more popular, much more user-friendly than WhatsApp. It has 600 million users, and the [number of] daily active users is 200 million. That's big. They even offered a very smart promotion to help them gain ground in the U.S. - users can connect their Google accounts and perhaps get a cash bonus. That's just one example of what China's doing in global markets.

6. Looking ahead?

OZY: Let's look to the future.

HT: The biggest challenge for China is the slowing down of the economy. Normally people talk about three driving factors for China's economy: export, investments and consumption. China's economy traditionally relied more on export and investment. Investment has meant government-planned projects, huge projects on infrastructure, on big state enterprise projects. That investment is not very efficient in terms of a return-on-investment point of view. So China's economy needs to improve on the consumption level.

Just a few decades ago, we didn't have showers. Or hot water. So 80 percent of China has made a jump from a very, very poor primitive culture society to being very advanced. And I'm not just talking about Shanghai, but the rural parts as well. Now, we have iPhones, we have personal cars, we have apartments, we have single-family houses, we have high-rise buildings. And Shanghai has more high-rise buildings than San Francisco and Chicago.

So, I think there is much that could surprise us in the next few decades, too.

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